VAT Exempt Transactions

Subject to the provisions of subsection (2) hereof, the following transactions shall
be exempt from the value-added tax:
1.

"Sale or importation of:

agricultural and marine food products in their original state,

livestock and poultry of a kind generally used as, or yielding or producing foods
for human consumption; and breeding stock and genetic materials therefor.
"Products classified under this paragraph (such as meat, fruits and vegetables)
shall be considered in their original state even if they have undergone the simple
processes of preparation or preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn
grits, raw cane sugar and molasses, ordinary salt, and copra shall be considered in
their original state;
Examples of Agricultural & Marine Food Products @ their original state
Agricultural

Marine

Livestock

Poultry

Polished/husked rice

Fish

Cows

Fowls

Corn grits

Crustaceans such
as:

Bulls

Ducks

Raw cane sugar &

molasses

Eels

Calves

Geese

Pigs

Turkey

Ordinary salt
Copra

Trout
Lobster

Sheep

Shrimps

Goats

Prawns

Rabbits

Oysters
Mussels
Clams
NOTE:

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 Livestock or poultry does not include fighting cocks, race horses, zoo animals and
other animals generally considered as pets

2.

"Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish,

prawn, livestock and poultry feeds, including ingredients, whether locally produced
or imported, used in the manufacture of finished feeds.

(except specialty feeds for race horses, fighting cocks, aquarium fish, zoo
animals and other animals generally considered as pets).
Note: Importation of raw materials are taxable. i.e.; importation of diatomaceous
earth which is used for the formulation fertilizers are subject to VAT.
3. "Importation of personal and household effects belonging to the residents of
the Philippines returning from abroad and nonresident citizens coming to resettle in
the Philippines: Provided, That such goods are exempt from customs duties under
the Tariff and Customs Code of the Philippines;
4. "Importation of professional instruments and implements, wearing apparel,
domestic animals, and personal household effects.
Except:
Any vehicle, vessel, aircraft, machinery, other goods for use in the manufacture and
merchandise of any kind in commercial quantity belonging to persons coming to
settle in the Philippines, for their own use and not for sale, barter or exchange,
accompanying such persons, or arriving within ninety (90) days before or after their
arrival, upon the production of evidence satisfactory to the Commissioner, that such
persons are actually coming to settle in the Philippines and that the change of
residence is bona fide;
5.

"Services subject to percentage tax under Title V;

6. "Services by agricultural contract growers and milling for others of palay into
rice, corn into grits and sugar cane into raw sugar;
Agricultural contract growers refer to those persons producing for others
poultry, livestock or other agricultural and marine food products in their original

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state.
i.e.; a contract for a package of services of receiving eggs from breeder farm,
sorting, fumigating, setting, hatching, sexing of day-old broilers, sorting and
delivering them to other contract grower.
7.

"Medical, dental, hospital and veterinary services except those rendered by

professionals;

Laboratory services are exempted. If the hospital or clinic operates a pharmacy

or drugstore, the sale of drugs and medicines are subject to VAT.
Hospital bills constitute medical services. The sales made by the drugstore to
the in-patients which are included in the hospital bills are part of medical bills (not
subject to vat).
The sale of the drug store to the out-patients are taxable because they are NOT
PART of medical services of the hospital.
Professional Practitioners
Professional Practitioners (PPs) are formerly classified as non-VAT taxpayers and
were exempt from the Value-Added Tax and Percentage taxes under Section 109 of
the National Internal Revenue Code (hereinafter referred to as the Code), until
December 31, 2002. Prior to this date, they were subject only to Income Tax under
Section 24 of the Code. Effective January 1, 2003, however, by virtue of Republic
Act Nos. 7716 and 9010, which were implemented by Revenue Regulation Nos. 12003 and 3-2003, services of PPs are also subject to either VAT or 3% Percentage
Tax.
Pursuant to Revenue Regulations No. 16-2005, services of Professional
Practitioners are subject to VAT if gross professional fees exceed P1,919,500 for a
12-month period and subject to 3% Percentage Tax if gross professional fees total
P1,919,500 and below for a 12-month period.
"Professional Practitioners" include the following:

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Certified Public Accountants

Insurance Agents (Life & Non-life)

Other Professional Practitioners required to pass the government examination

Others

8.

"Educational services rendered by private educational institutions, duly

accredited by the Department of Education (DEPED), the Commission on Higher

Education (CHED), the Technical Education And Skills Development Authority
(TESDA) and those rendered by government educational institutions;
9.

"Services rendered by individuals pursuant to an employer-employee

relationship;
10. "Services rendered by regional or area headquarters established in the
Philippines by multinational corporations which act as supervisory, communications
and coordinating centers for their affiliates, subsidiaries or branches in the AsiaPacific Region and do not earn or derive income from the Philippines;
11. "Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential
Decree No. 529 (Petroleum Exploration Concessionaires under the petroleum act of
1949.
12. "Sales by agricultural cooperatives duly registered with the Cooperative
Development Authority to their members as well as sale of their produce,
whether in its original state or processed form, to non-members; their

importation of direct farm inputs, machineries and equipment, including spare parts
thereof, to be used directly and exclusively in the production and/or processing of
their produce.
Agricultural Cooperative

Sale to Members

Sale to Non-Members

Sale of cooperatives own produce

Exempt

Exempt

Other than the cooperatives own

produce (i.e., from Traders)

Exempt

Subject to Vat

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13. "Gross receipts from lending activities by credit or multi-purpose cooperatives

duly registered with the Cooperative Development Authority;
Exemption is not only limited to the gross receipts on loans extended to its
members but also to other persons who are not members.
14. "Sales by non-agricultural, non-electric and non-credit cooperatives duly
registered with the Cooperative Development Authority: Provided, That the share
capital contribution of each member does not exceed Fifteen thousand pesos
(P15,000) and regardless of the aggregate capital and net surplus ratably
distributed among the members;
Importation by non-agricultural, non-electric and noncredit cooperatives of
machineries and equipment including spare parts thereof, to be used by them are
subject to vat.
15. "Export sales by persons who are not VAT-registered;
16. "Sale of real properties
not primarily held for sale to customers or held for lease in the ordinary course
of trade or business,

Only sale of real properties held primarily for sale to customers or held for

lease in the ordinary course of trade or business of the seller shall be subject to vat.
Residential lot valued at P1,919,500 & below (formerly P1.5M). If two or more
adjacent residential lots are sold or disposed in favor of one buyer, for the purpose
of utilizing the lots as one residential lot, the sale shall be exempt from vat only if
the aggregate value of the lots do not exceed P1,919,500. Adjacent residential lots,
although covered by separate titles and/or separate tax declarations, when sold to
one and the same buyer, whether covered by one separate Deed of Conveyance,
shall be presumed as sale of one residential lot. (RR 16-2011)
House & Lot, and Other Residential Dwellings valued at P3,199,200 and below.
real property utilized for low-cost housing (ceiling price per unit does not

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exceed P2,000,000) and socialized housing (ceiling price per unit does not exceed
P300,000) as defined by Republic Act No. 7279, otherwise known as the Urban
Development and Housing Act of 1992, and other related laws,

Provided, that every three (3) years thereafter, the amounts herein stated shall be
adjusted to their present values using the Consumer Price Index, as published by
the National Statistics Office (NSO);
17. "LEASE of a RESIDENTIAL UNIT with a monthly rental not exceeding Ten
thousand pesos (P12,800) regardless of the amount of aggregated rentals received
by the lessor during the year. Provided, That not later than January 31, 2009 and
every three (3) years thereafter, the amount herein stated shall be adjusted to its
present value using the Consumer Price Index as published by the National
Statistics Office (NSO); (RR 16-2011).
LEASE of RESIDENTIAL UNITS where the monthly rental per unit exceeds
P12,800 but the aggregate of such rentals of the lessor during the year do not

exceed P1,919,500 shall likewise be exempt from VAT, however, the same shall be
subjected to the 3% percentage tax.
In cases where a lessor has SEVERAL RESIDENTIAL UNITS for LEASE, some are
leased out for a monthly rental per unit of not exceeding P12,800 while others are
leased out for more than P12,800 per unit, his tax liability will be:
v The gross receipts from rentals not exceeding P12,800 per month per unit shall
be exempt from vat regardless of the aggregate annual gross receipts.
v The gross receipts from rentals exceeding P12,800 per month per unit shall be
subject to vat if the annual gross receipts (from said units only not including the
gross receipts from units leased out for not more than P12,800) exceed P1,919,500.
RESIDENTIAL UNIT shall refer to:
Apartments and houses and lots used for residential purposes;
Buildings or parts or units thereof used solely as dwelling places (i.e.,
dormitories, rooms, bed spaces) except motels, motel rooms, hotels and hotel

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rooms.
UNIT shall refer to:
Apartment unit in case of apartments
House in case of residential houses
Per person in case of dormitories, boarding houses and bed spaces; and
Per room in case of rooms for rent
18. "Sale, importation, printing or publication of books and any newspaper,
magazine, review or bulletin which appears at regular intervals with fixed prices for
subscription and sale and which is not devoted principally to the publication of paid
advertisements;
19. "Sale, importation or lease of passenger or cargo vessels and aircraft, including
engine, equipment and spare parts thereof for domestic or international transport
operations;
Provided, that the exemption from vat on the importation and local purchase of
passenger and/or cargo vessels shall be limited to those of 150 tons and above,
including engine and spareparts of said vessel; and the vessel to be imported shall
comply with the age limit requirement as follows:
Passenger and/or cargo 15 years old
Tankers 10 years old
High speed passenger crafts 5 years old
Provided, finally, that the exemption shall be subject to the provisions of Sec. 4 of
RA 9295, otherwise known as The Domestic Shipping Development Act of 2004
Sale of vessels with age of more than 15 years is subject to vat
20. "Importation of fuel, goods and supplies by persons engaged in international
shipping or air transport operations;

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Provided that the:

Fuel, goods and supplies shall be exclusively or shall pertain to the transport of
goods and/or passenger from a port in the Philippines directly to a foreign port
without stopping at any other port in the Philippines.
Fuel, goods or supplies is used for the purposes other than that mentioned in the
preceding paragraph, such portion of fuel, goods and supplies shall be subject to
12% vat.
21. Importation of life-saving equipment, safety and rescue equipment and
communication and navigation safety equipment, steel plates and other metal
plates including marine-grade aluminum plates used for shipping transport
operations; Provided, that the exemption shall be subject to the provisions of Sec.
19 of RA 9295, otherwise known as The Domestic Shipping Development Act of
2004 (RR 4-2007).
22. Importation of capital equipment, machinery and spare parts, life-saving and
navigational safety equipment, steel plates and other metal plates including marinegrade aluminum plates used in the construction, repair, renovation or alteration of
any merchant marine vessel operated or to be operated in the domestic trade.
Provided, that the exemption shall be subject to the provisions of Sec. 19 of RA
9295, otherwise known as The Domestic Shipping Development Act of 2004 (RR
4-2007).
23. "Services of banks, non-bank financial intermediaries performing quasibanking functions, and other non-bank financial intermediaries (i.e.; money
changers and pawnshops); and
24. "Sale or lease of goods or properties or the performance of services other than
the transactions mentioned in the preceding paragraphs, the gross annual sales
and/or receipts do not exceed the amount of P1,919,500; Provided, That not later
than January 31, 2009 and every three (3) years thereafter, the amount herein
stated shall be adjusted to its present value using the Consumer Price Index as
published by the National Statistics Office (NSO);

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25. Vat on Purchase of SPECIFIED Goods and Services by a Senior Citizen.

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